GUTIERREZ WEIGHS IN WITH FM MUKHERJEE ON BELL

C O N F I D E N T I A L SECTION 01 OF 04 NEW DELHI 000783 SIPDIS SIPDIS E.O. 12958: DECL: 01/11/2012 TAGS: PREL PGOV PTER PINR PBTS MOPS KDEM KISL PK IN SUBJECT: GUTIERREZ WEIGHS IN WITH FM MUKHERJEE ON BELL HELICOPTER, INDIA-IRAN AND INDIA-CHINA RELATIONSHIPS REF: A. STATE 14071 ¶B. NEW DELHI 000439 NEW DELHI 00000783 001.2 OF 004 Classified By: Ambassador David C. Mulford for Reasons 1.4 (B, D) ¶1. (C) SUMMARY: Even while extolling the significant growth in U.S. ) India economic and political ties and assuring the GOI,s continued support, Indian External Affairs Minister Pranab Mukherjee stubbornly defended to Secretary of Commerce Carlos Gutierrez, Under Secretary Frank Lavin, and Ambassador the Indian government,s decision to disqualify Bell Helicopter from the recent competition for the Indian Army's purchase of 197 helicopters at their February 13 meeting. On Iran, Mukherjee counseled patience and continued engagement, noting &the answer is dialogue, not confrontation.8 He waxed philosophical about India,s relationship with China, discussing confidence-building measures such as educational exchanges. Secretary Gutierrez and Ambassador concluded the meeting by pressing for a signal that India,s defense marketplace is truly open for business. END SUMMARY. &ENCOURAGING8 BILATERAL TRADE IN INDIA,S DEFENSE MARKETPLACE -------------- -------------- ¶2. (SBU) External Affairs Minister Mukherjee began the meeting by commenting on his appreciation for the efforts by President Bush and Secretary Rice to assure bipartisan support for passage of the Agreement for Peaceful Nuclear Cooperation (123 Agreement),while noting that there were, of course, &certain areas8 still to discuss. He did not comment on the earlier GOI proposal for him to go to Washington in the last week of March to resolve remaining 123 Agreement issues. He then shifted to the topic of improved U.S. ) India economic growth, welcoming the 23% growth in two-way trade over the prior year and calling it &quite encouraging.8 He noted that the U.S. was India,s single largest trading partner and said he hoped to see trade continue to increase. Secretary Gutierrez used this opportunity to reference the bigger picture, calling increased trade a &platform for the future8 and evidence of the growing relationship between two great democracies. Gutierrez underlined that the U.S. is committed to meaningful and long-lasting economic ties with India, and asserted that increased private business investment should be a hallmark of this relationship. STRIKING A BALANCE ON IRAN -------------- ¶3. (C) Mukherjee continued to stress patience and dialogue with Iran regarding implementation of UNSCR 1737 (ref a), stating both that Iran was an important supplier of their energy and that many Indians were living there. "It is in our interest that it is tranquil" in the region, he said. However, he quickly added that Iran could not continue on its present course. While India recognizes all countries have NEW DELHI 00000783 002.2 OF 004 the right to pursue sufficient domestic energy supplies, he prefaced, Iran must heed the message sent by Security Council resolution 1767, especially as China and Russia were on board with the decision. He added that as a signatory to the Nuclear Nonproliferation Treaty, Iran must fulfill its obligations and work with the IAEA. Still, he held out hope that if Iran really was developing a purely civil nuclear program, it could certainly convince the IAEA of this fact. He concluded that the answer lay in continued engagement, not confrontation. ¶4. (C) Responding to a question by Secretary Gutierrez, Mukherjee confirmed that Iran asked about the U.S. Civil Nuclear Agreement on his February 6 - 7 visit to Tehran. He said he relayed that India,s relationship with the U.S. need not impinge on its relationship with Iran, and that India viewed the two as separate issues. INDIA - CHINA CONFIDENCE BUILDING MEASURES -------------- ¶5. (C) Gutierrez turned the discussion toward China, querying Mukherjee on the current status of the relationship. Mukherjee responded that bilateral trade was growing quickly, had already crested $25 billion, and that the two countries had set a 2010 target of $40 billion. He sounded a similarly upbeat note on the broader dispute, discussing the ongoing confidence-building measures the two countries are taking. He focused on cultural and educational exchanges, recalling how in the 7th Century India had been a center of learning to which the leaders of China would come for study. He said the South Asian Association for Regional Cooperation (SAARC) countries were discussing establishing a new university for international understanding and peace, and he hoped this effort would recall India,s earlier reputation. HARD LANDING FOR BELL HELICOPTER? -------------- ¶6. (C) Returning to the topic of trade, Secretary Gutierrez referenced the surging volume of U.S. - India bilateral trade. At $32 billion and growing, India is squarely on the radar for U.S. companies, and the U.S. is committed to fostering this growth. However, he continued, it is critically important that the perception in Congress remain that there is a level playing field in India for U.S. businesses. In this light, Secretary Gutierrez referenced the disqualification of Bell Helicopter from the recent competition for the Indian Army's purchase of 197 helicopters and said there was &confusion8 regarding the GOI,s decision-making process. He impressed on Mukherjee that it was imperative the selection process in such business deals be seen as transparent. If not, the message would be that U.S. businesses were being treated unfairly. ¶7. (C) Hearing this, Mukherjee responded with assurances that the GOI was committed to providing a &level playing NEW DELHI 00000783 003.2 OF 004 field and totally transparent processes8 generally, but that Bell Helicopter had not done its part in this specific case. The issue, he continued, was not one of transparency, but rather one of logistics and of Bell not meeting well-publicized technical parameters. Mukherjee said he had to go by the assessment of the Chief of Army Staff J.J. Singh, who had told him Bell had known since September 2005 that it did not meet all the technical requirements (ref b) and had since been unable to address this failing. (We will follow-up with Mukherjee's staff to correct this misperception regarding Bell 407 capabilities.) ¶8. (C) Lavin rebutted, "Bell has a very different view of the facts of the situation" and asked if it would be helpful to leave a non-paper on the topic, prompting a heated response from the Foreign Minister. Ambassador Mulford then attempted to clarify the issues and the timeline of the situation from July 2005 onwards, during most of which Mukherjee was serving as Defense Minister. The Ambassador explained that Bell claims it was advised verbally in July 2005 their helicopter satisfied all requirements and no test was needed. Bell subsequently requested written confirmation of this notification five times but received no response from the Ministry. Since that time, the Ambassador added, Bell and the GOI had been in continuing discussions regarding the project, and many senior Administration visitors had raised our issues regarding the transaction, yet no mention was made of any non-compliance issues by the Indian side. The Ambassador questioned how so many meetings could have occurred without any mention of this fact. Mukherjee attempted to end the conversation at this point by noting there would have to be some record of the events that occurred and that these records would simply be reviewed. The Ambassador suggested that both sides work to assemble a common set of facts, so that the fall out from this decision would not negatively impact the potential for future transactions. INDIA OPEN FOR BUSINESS? -------------- ¶9. (C) Shifting gears, Gutierrez brought to Mukherjee,s attention Honeywell,s bid to replace 250 Jaguar engines, calling it both an important business deal and another opportunity to signal to the U.S. that India,s defense marketplace is open (Honeywell tells us this deal is worth about $750 million). He reminded Mukherjee that U.S. market share in the defense market was still quite low. Mukherjee responded that this was "of course" the case, as prior to 2005, U.S. firms were not allowed to respond to requests for proposals. Since Mukherjee signed the U.S.-India Defense Cooperation Agreement, he believed this situation had changed rapidly and was pleased with the rate of trade expansion in this sector. He mentioned that he had met with several firms who had come to India for Aero India and had assured them all selection procedures were transparent and the playing field was indeed level. However, he again cautioned against NEW DELHI 00000783 004.2 OF 004 expecting immediate success, as it would take time to trust that U.S. suppliers would be good partners over the long term. With this said, he then offered assurances that if U.S. company bids are competitive, they will be selected. Gutierrez reminded him that U.S. firms required only the chance to show they were in fact better partners. ¶10. (C) Gutierrez concluded the meeting by urging resolution of longstanding commercial disputes involving Dow Chemical and McDermott. Both were potential candidates to make future investments in India, and resolving these issues would send a signal to American companies and, indeed, the world how two great democracies were committed to growing together. ¶11. This cable was cleared by Secretary of Commerce Carlos Gutierrez. MULFORD